in 2006 and 2007 Goldman Sachs sold more than $40 billion in securities backed by at least 200,000 risky home mortgages. These were bought by all sort of investors, including pension funds. At the same time, Goldman Sachs was betting that a sharp drop in US housing price would send the value of those securies to the floor. Of course, Goldman’s reason is straightforward: they were “hedging”!.
From The Financial Times www.ft.com
Helping the poor just got popular
Sophia Grene. Financial Times. London (UK): Nov 9, 2009. pg. 8
“Microfinance ; Investors are attracted by the sector’s crisis-proof qualities as well as the social aspect, says Sophia Grene
Since Muhammad Yunus won the Nobel prize in 2006 along with the Grameen Bank he founded for the poverty-bound entrepreneurs of Bangladesh, microfinance has entered the consciousness of the investment community.
The concept of lending small amounts to very poor women, each borrower part of a group that is jointly responsible for repayment, has been extended and modified as it moved to different economies with other requirements. The common thread is providing relatively small loans to people who would otherwise not have banking facilities.
While the original concept was all about lending a helping hand to lift people out of poverty, the inevitable result of the structure was that investors would see it as an opportunity.
Grameen Bank itself cannot look for investment from outside Bangladesh for legal reasons, but a myriad of other microfinance institutions are not so bound and globally some $7bn (pound(s)4.2bn, EUR4.7bn) is invested in MFIs. An equivalent amount is committed by donation, but the invested money is expected to be repaid with interest. (more…)
Telephone interview with Elinor Ostrom following her award.
National Academy of Science Profile of Dr Ostrom
Here you can find summary of Ostrom’s book Governing the Commons.
Here is an interesting post from a colleague offering his congratulations.
I also find it very interesting that Oliver Williamson shared the price with Elinor Ostrom . . .
Below is an extract from the Nobel committee justifying the award.
“Traditionally, economic theory has by and large been a theory of markets or, more precisely, about market prices. However, there are at least two reasons why economic science should extend beyond price theory. First, markets do not function properly unless suitable contracts can be formulated and enforced. Hence, we need to understand the institutions that support markets. Second, considerable economic activity takes place outside of markets within households, firms, associations, agencies, and other organizations. Hence, we need theories to explain why these entities exist and how they work. This years Laureates have been instrumental in establishing economic governance as a field of research. Elinor Ostrom has provided evidence on the rules and enforcement mechanisms that govern the exploitation of common pools by associations of users. Oliver Williamson has proposed a theory to clarify why some transactions take place inside firms and not in markets. Both scholars have greatly enhanced our understanding of non-market institutions.” (nobelprize.org)
In a nutshel, one author (Ostrom) studies the commons outside capital, while the other (Williamson) studies the rules defining when it is convenient to have firms or markets as a main organisational context for production. Notice that this “convenience” in Williamson argument has to do with the minimisation of the cost of conflict, i.e. with the condition for “efficient conflict resolution”:
“In the early 1970s, Oliver Williamson argued that hierarchical organizations sometimes dominate markets because they provide a cheaper way to resolve conflicts. If two employees quarrel about the allocation of tasks or the distribution of revenues, a chief executive is entitled to
decide. In a market, on the other hand, negotiations have to continue until both parties agree. Haggling costs can be substantial, and there is no guarantee that the final agreement will be either immediate or efficient.” (nobelprize.org/nobel_prizes/economics/laureates/2009/info.pdf)
But firms, i.e. capitalist firms, also rely on some sort of commons. According to Ostrom, “even the best functioning markets are undergirded by an array of collective institutions which order people’s market interactions, and that in the absence of such rules, self interested behaviour will have highly adverse consequences.” (see crookedtimber.org/2009/10/12/the-ostrom-nobel/#more-13312). Thus I wonder whether one could expand Williamson problematic and apply it to commons rather than firms. His theory then would also guide decisions on when it is “economically rational” in terms of “efficient handling of conflict” to rely on markets or when on commons linked to markets, i.e. commons set in competition with one another.
I feel that the two approaches combined or linked in some way could give a workable theoretical framework to advance capital by coopting commons and commons discourse. There are some signs that a “discursive recomposition” of capital is occurring along these lines. As a very minor indication see for example The Economist’s interest in workers co-operatives, especially in moment of crisis and austerity.
Below is the “agenda-setter” video on REDD, which was sponsored by the UN-REDD Program, produced by the London based Television Trust for the Environment (www.tve.org/) and shown as a curtain raiser at the United Nations Secretary-Generals High Level Event on REDD held on September 23rd at the United Nations Headquarters in New York. Read also these two short pieces (from CNN and intercontinentalcry) reporting some of the problems with these programmes. In particular what is interesting here is that the REDD programme is a case of distorted commons, i.e. one in which the “sharing” is functional to capitalist growth and therefore it is a locus of frontline contradictions (such as preventing indigenous to self-manage their forest in the name of climate change). Interestingly, if existing (and not only newly planted trees) forests are given monetary value, and these in turn are turned into tradable credits that can be purchased on the market, a carbon credit glut seems inevitable with a consequent fall in price, making the entire carbon credit scheme even more of a farce.
Here is one example of how green capitalism will not save the planet: recession is bad for recycling. Why?because demand for recycling products drops in a recession, hence much of what we diligently pile up in different boxes may end up in a land incinerator . . .read on from the sector’s paper food production daily NOW is the time to campaign for recycling! When it cost them money!
Waste reduction urged as demand for recyclables drops
By Jane Byrne , 17-Nov-2008
Related topics: Supply Chain, End-of-Line Packaging, Packaging Materials, Primary Packaging
A push for waste minimisation and the production of high quality marketable recyclables is being promoted by stakeholders as demand and prices for recycled materials the UK drop significantly.
The drop in prices has been attributed to reduced demand from China in particular for recycled materials, with manufacturers reducing their output due to current economic restraints.
The Department for the Environment, Food and Rural Affairs (DEFRA), the Waste Resources Action Programme (WRAP), the National Industrial Symbiosis Programme (NISP) and the Local Government Association (LGA), said they want to ensure that the recent slump does not undermine public confidence in the value of recycling, nor lead to unacceptable environmental consequences.
“Recycling remains a better, and cheaper, option than sending material to landfill so people should continue recycling,” claims the joint sector statement.
However, a spokesperson for the body representing the UK food and drink manufacturing sector, the Food and Drink Federation (FDF), told FoodProductionDaily.com that consumers want to be confident that their efforts to recycle bear fruit by saving valuable resources and the planet.
And the Confederation of Paper Industries (CPI) warns that as a result of the fall in demand, some material collected for recycling could, in the worst case scenario, go to incineration or landfill.
Steve Creed, Director of Business Growth at WRAP, said that the agency believes the current very low prices for recovered materials will be temporary but that there may be increased storage of some materials including plastics, paper, and metal products in the short term until the markets pick up again.
According to Creed, what has become clear is the importance of the quality of recovered materials, with high quality materials still in demand in the UK and overseas. “Dialogue between waste producers (including local authorities) collectors and waste processors is crucial, to ensure the right quality of material.”
He said that local authorities and their contactors need to ensure that they have a home for materials that are being stored in the short term, that the storage will not compromise the environment and does not lead to deterioration in the quality of the materials that will further reduce their recyclability or value.
More dairy output. Less cost. Tetra Lactenso Aseptic.
The aseptic dairy solution that enables you to get both. Thanks to high availability and uptime. Shorter pre-sterilization times. Longer running times. Easy cleaning and low maintenance. And all at a lower system cost. From Tetra Pak…
Creed argues that, in terms of recycling levels, the UK has come a long way in the last seven years, before which, he added, there was a limited domestic market for the reprocessing of recovered materials.
He said that much of the increase in the UK’s recycling capacity is as a result of WRAP’s involvement and support, including a partnership with Shotton Paper Mill, providing funding for it to convert to using 100 per cent recycled fibre that has resulted in all newsprint produced in the UK now being made with 100 per cent recovered fibre.
“WRAP also helped fund Closed Loop London – which makes plastic milk bottles back into plastic milk bottles,” he added.
Meanwhile, WRAP launched an initiative last month aiming at inviting proposals for projects to design, develop and trial innovative processes and approaches to reduce waste in the food supply chain.
The agency said that food companies can help reduce waste through such measures as the use of:
Divisible or flexible packaging to aid portioning of food/ingredients by customers such as side-by-side packs, or ‘eat me, freeze me’ packs
Resealable packaging to protect and maximise shelf-life and quality of food
Shelf-life extending packaging technologies such as breathable films, oxygen and ethylene scavengers
Customised, modified atmosphere packs or vacuum-sealed packs where appropriate
Smart labels that clearly communicate food conditions to customers and improve inventory control such as time and temperature indicators and radio frequency RFID technologies, and
According to WRAP, an example of innovation in food manufacturing could be an increase in production efficiency and reduction in waste raw materials or products, reductions in product damage or enhanced freezability of the products.
The closing date for proposals is Thursday 20 November, with shortlisted projects announced on 2 December.
I went partying last night in the dome, inside the castle mountain in Graz, where tunnels and bunkers have been carved out by the Nazis during the second Word War and now are used as dance floors and conference spaces. This is music that — given the sheer volume and the drum&base pumping — passes through you, or at least, it does so if “you let it”, as someone told me (ehm, shouted at me) on the dance floor. Now here is a thought. In the morning I had a workshop on my book as part of the Elevate festival, and among other things we discussed the idea that the capital relation, or the value struggle, passes through us. Mmhh, so, what happens when in the evening the music passes through you? It happens that it is banging the capitalist relation out of ourselves, at least momentarily, leading to the momentary uncoupling from the temporal dimension of capital, the one that requires schedules, deadlines, responsibilities that have no or little meaning as well as endless struggle against it. If you add the fact that in music, rhythm constitutes the commons (see this blog entry), then this is it! The dance/rave culture that lives its nights and morning floating from one dance-floor to another, is the contemporary manifestation of what in the 1970s was called “il bisogno di comunismo” (the need for Communism) . . or “commOnism” . . .
I was recently drawn back to some of my older writing on the Tobin Tax by a companera’s request to comment on it. So, I thought that since the Tobin Tax is and will be on the agenda of some sections of the movements, it has been raised in the Beijing declaration by Focus on Global South and TNI, and it has already attracted some critical comments in various lists, it would be important for us to give it a slightly more critical analytical consideration. In the following notes I will freely take from my old article “Capital Movements, Tobin Tax, and Permanent Fire Prevention: a Critical Note.” In Journal of Post Keynesian Economics, Vol. 22, No. 2, Winter 1999-2000.
First, for those who need an intro, the Tobin Tax is a tax levied on foreign exchange transactions and takes its name from James Tobin, who proposed it in 1974 in the midst of the then crisis back then. An element of that crisis was the rise of short term capital movements, which nevertheless were a fraction of what we have today.
There are three main rationales for the Tobin tax . . . . In the first place, this tax would be essentially a small transaction tax that would penalize short-term round-trip movements of speculative capital, thus helping to put grains of sand in the wheels of international finance (Eichengreen, Tobin, and Wyplosz 1995). In this way, the Tobin tax would reduce the profitability of short-term speculation and allow exchange rates to better reflect long-term factors in the real economy rather than short-term speculative flows. The second rationale is based on the greater autonomy this tax would give governments in pursuing economic policies, by being shielded from financial market discipline on domestic fiscal and monetary policy. Finally, the third rationale for such a tax is its revenue-raising potential. According to an older United Nations study, a Tobin tax of merely 0.05 % could raise $150 billion a year (United Nations 1994: 9) [this is of course a pittance in relation to current bailout regimes (a pittance which of course depends on the low tax rate, which — following the “grain of sand” logic — has to be low, otherwise capital movements would be brought completely to a halt, and this is something its proponents do not wish.]
There are three main interrelated criticism of the Tobin Tax. The first one comes from Paul Davidson, a post-keynesian economist, who argues that “the imposition of a Tobin tax per se will not significantly stifle even very short-run speculation if there is any whiff of a weak currency in the market. In fact, any Tobin tax significantly less than 100% of the expected capital gain (on a round trip) is unlikely to stop the sloshing around of hot money. (Davidson 1997: 678)” Thus, taking for example the case of the fall of the Mexican peso during the crisis of 1994-95, in which the peso fell by about 60%, a Tobin tax of about 23% would have been required to stop speculative run on the peso.
In our terms, therefore, the first argument against the Tobin Tax is that it is not a solution to capital movement and their disciplinary role of enforcing crises following profitability expectations.
The second argument is this: if we want the tobin tax because it transfers money from capital to labour, then it is legitimate to ask why the Tobin Tax and no other form of progressive taxation or wealth redistribution and reformulation of property right? This question is even more legitimate, assuming the validity of the first argument.
Third, and consequently, there is what Werner mentioned, that is the Tobin Tax “comprise well thought out ideas as to how to secure existing social relations”, i.e. capitalist relations. It is a mild form of capital control, that does nor prevent crises, it modest revenue raising powers gives the impression of addressing social justice, but it will be instrument for casting a new capitalist deal. With respect to this, for us the question will be to try to assess how — in today’s given context of crisis in its specificity — the tobin tax could in fact be used to secure existing social relations, as a part of a new deal.
But in general, let us hope that our marches and demos in the next months and years will see less of those awful banners with the “%” sign: I could never had thought that such a symbol of capitalist compound interest rationality could also become the symbol of part of a social movement.
In the US, the loss in the value of pensions (private and public) amount to $1 trillion. And they still dare to tell us to diversify investment portfolio in order to minimise risk. See the Statement by Peter R. Orszag, Director of the US Congressional Budget Office.
Paulson’s argument for keeping his $700b bailout programme a free gift to his old Wall Street mates is that it is designed to attract private partners who would be discouraged if too many caveats are put into place: see here
here is Paulson’s testimony
check also Naomi Klein’s interview on democracy now . . . .when it was run by Paulson, Goldman & Sacks increased debt exposure enormously, hence today’s bail out goes to safe his old colleagues ‘ass
check this: presidential debate suspended, general states called, bipartisan consensus seeked to frame $700b plan . . .we might be in the midst of a process to generate a new kind of consensus which will set the framework for policies for the next few decades.
also, from Naomi’s bulletin the news that Gingrich is holding an event this Saturday, September 27 that will be broadcast on satellite television to shore up public support for new controversial policies. . . .
here is the breakdown of different take and resistance around Paulson from RGE monitor site:
◦ In its original version, Treasury requests the right to buy anything from any institution (incl. hedge funds) at theoretically any price it deems right without oversight or legal recourse. Management of assets will be outsourced to the private sector. Authority expires Sep 2010. By order of magnitude, the entire shadow banking system incl. brokers and hedge funds is $10 trillion of which $5 trillion are buried in off-balance sheet vehicles.–> House Republicans warn Treasury Secretary Henry Paulson on Sep 24 that his $700 billion financial rescue plan wouldn’t pass and ask for more time to consider alternative ideas.
◦ Ben Bernanke proposes ‘hold-to-maturity’ purchase price instead of current market value described as ‘fire-sale’ price.
◦ Krugman: if taxpayers are to overpay for securities that other private market participants would not take at any price then an equity stake is a MUST; i.e. should be make-or-break issue in Congress.
◦ Democrats’ alternative plan includes measures on: restrictions on executive compensation, Equity stakes in return for bailout to recapitalize institutions and retain upside for taxpayers; Bankruptcy reform to lower debt value of purchased mortgages; Independent oversight of how $700bn are spent; Second stimulus package for Main Street next to bailout for Wall Street.
◦ Industry groups want to temporarily suspend mark-to-market accounting in order no to take a writedown on sold assets
◦ Tett: valuation and pricing issues prevented the first Super-SIV from working, the same might happen again. If bad asset purchase price is too low, writedowns might be too large to bear; if price is too high, taxpayer overpays and has limited upside eventually–>
◦ Geithner (via MarketWatch): The ’shadow banking system’ that needs to be re-intermediated is a $10 trillion market without adequate capital provisions (=$2.2tr commercial paper conduits incl ABCP + $2.5tr repo/reverse repo market + $4tr combined brokerage assets + $1.8tr hedge funds = $10.5tr in 2007) that boomed outside traditional banking. In comparison: the traditional banking system is also $10trillion.
◦ In July, FASB has decided to “eliminate the concept of the Qualified Special Purpose Entity (QSPE)” in the revised financial-accounting standard, FAS 140, starting November 2009. This requires banks to consolidate off-balance sheet vehicles used to package assets into securities –> Up to $5 trillion of dollars worth of illiquid assets/derivatives are buried on banks’ Variable Interest Entities (VIEs)
◦ BIS Joint Forum: CDO of ABS (i.e. structured finance CDOs), CDO^2 are not likely to survive the turmoil .
◦ SIFMA: Global issuance of CDOs from 2004 - 4Q2007 totaled $1.47 trillion. CDO issuance by underlying collateral in 2007: -$254.8bn structured finance CDOs (collateral pool consisting of RMBS, CMBS, CMOs, ABS, CDOs, CDS, and other securitized/structured products) -$148.3bn high-yield loans (rated below BBB-/Baaa3) CDOs -$78bn investment-grade bonds CDOs
Naomi was rebuked by Andrew Sullivan remarks that the problem is not shock, but there is not enough “capitalism”, where people take responsibility, taxes are on a level playing field etc. . . .it is actually quite interesting here the fact that this is the major impasse between the two, on other themes much agreements it seems.
Here 5 economists interviewd by Al Jazzeera, incluing James Galbraith . . .ranging here from keynesian growth policy to calls against moral hazard
The article above was asking: is this the end of capitalism? A specular question was asked during BBC Newsnight by Jeremy Paxman to Naomi Kleim: what is the alternative to capitalism? There is always an impasse to this question, precisely because the question requires an “ism” for an answer, and we are quite sceptical about providing these (and this is good, it means we are sensible to the fact that the “ism” comes out of our own interaction, and is not a magic formula you and I can campaign on. So, we should say: I do not know what is the alternative to capitalism, but I know what is the alternative to capital, and that is that people start to run their own affairs in common, giving values to other things than profit. For example, the alternative is that instead of giving $700 billion as a blank check to the financial capital of wall street, we let them bankrupt, buy their assets at a bargain, and start use finance as a conduit for socially and environmentally sustainable investment, predicated on social justice. Who decide what is just? well, since these financial powerhouse will be in public hand, we have to open a debate what do we mean by democracy . . .
Here is the Austrian economist position. Here the author claims the bailout will be $5 trillion. The argument is that “More formally, there is a gap between the nominal and real value of debt instruments that across the entire credit spectrum easily exceeds $5 trillion, the risk of which the federal government has assumed.” Through the bailout the federal government is providing a floor to the assets prices above the “real value” of assets (i.e. very low in these conditions). To paraphrase Marx, as soon as wall street and government put their heads together, the sacred laws of supply and demand are repealed.
Three options are given here by the Austrian economist author Don A Rich:
“First, the federal government raises taxes to pay off the difference. That clearly isn’t good news for Wall Street or the wealth-creation process.
Second, the Federal Reserve System prints enough money to prop up debt-security prices at nominal values over time, thereby bringing about equilibrium by raising the prices of everything else. A borderline hyperinflation isn’t good news for Wall Street.
Third, perhaps in some instances the federal government seizes the assets of the financial industry at fire-sale prices, and therefore inflicts the loss on shareholders and private creditors in a bizarre form of monetary-policy-induced, catastrophe-driven socialism or fascism.”
Well perhaps not, perhaps the seizure of financial assets could in principle open to a different and far more democratic use and function of finance as mentioned above.
Here Saskia Sassen’s “New new Deal”: let us spend $700 billion but in different ways (infrastructure, social services etc.). No mention about the link between fed expenditure and gov control on wall street.